Another example of this backwards analysis can be found in the debate over the IRS budget. The President is resisting a GOP proposal to modestly trim the IRS’s gargantuan $12.5 billion budget and his argument is that we should actually boost funding for the tax collection bureaucracy since that will mean more IRS agents squeezing more money out of more taxpayers.

Every dollar the Internal Revenue Service spends for audits, liens and seizing property from tax cheats brings in more than $10, a rate of return so good the Obama administration wants to boost the agency’s budget.House Republicans, seeing the heavy hand of a too-big government, beg to differ. They’ve already voted to cut the IRS budget by $600 million this year and want bigger cuts in 2012. …IRS Commissioner Doug Shulman told the committee Tuesday that the $600 million cut in this year’s budget would result in the IRS collecting $4 billion less through tax enforcement programs. The Democrat-controlled Senate is unlikely to pass a budget cut that big. But given the political climate on Capitol Hill, Obama’s plan to increase IRS spending is unlikely to pass, either. Obama has already increased the IRS budget by 10 percent since he took office, to nearly $12.5 billion. The president’s budget proposal for 2012 would increase IRS spending by an additional 9 percent — adding 5,100 employees. …Obama’s 2012 budget proposal for the IRS includes $473 million and 1,269 new positions to start implementing the health care law.

Unlike Keynesian economics, there actually is some truth to Obama’s position. The fantasy estimate of $10 of new revenue for every $1 spent on additional bureaucrats is clearly ludicrous, but it is equally obvious that many Americans would send less money to Washington if they didn’t have to worry about a coercive and powerful tax-collection bureaucracy that had the power to throw them in jail.

This is an empirical question, at least with regards to the narrow issue of whether more IRS agents “pay for themselves” by shaking down sufficient numbers of taxpayers. Reducing the number of IRS bureaucrats by 90 percent, from about 100,000 to 10,000, for instance, surely would be a net loss to the government since the money saved on IRS compensation would be trivial compared to the loss of tax revenue.

But that doesn’t mean that a reduction of 10,000 or 20,000 also would lead to a net loss. And it certainly does not mean that adding 10,000 or 20,000 more IRS agents will result in enough new revenue to compensate for the salaries and benefits of a bigger bureaucracy. Even left-wing economists presumably understand the concept of diminishing returns.

But let’s assume that the White House is correct and that more IRS agents would be a net plus from the government’s perspective. The Administration would like us to reflexively endorse a bigger and more aggressive IRS, but public policy should not be based on what is a “net plus” for the government.

There are two ways to promote better tax compliance. The Obama approach, as we’ve read above, is to expand the size and power of the IRS. Up to a point, this policy can be “successful” in extracting additional money from the productive sector of the economy.

The alternative approach, by contrast, seeks better compliance by lowering tax rates and reforming/simplifying tax systems. This course of action boosts compliance by making evasion and avoidance less attractive. People are much less likely to cheat if the government isn’t being too greedy, and they’re also more likely to comply if they think there is less waste, fraud, corruption, and favoritism in the tax code.

Let’s now put this discussion in context. Obama wants more IRS agents in large part to enforce his new scheme for government-run healthcare. Yet that’s a perfect example of what I modestly call Mitchell’s Law – politicians doing one bad thing (expanding the IRS) only because they did another bad thing (enacting a health care bill that made the tax code even more convoluted and punitive).

Indeed the IRS will be after that evil income, which, having been taxed at a combined Federal and State (CA) Corporate tax rate of 43% and then a combined Federal and State (CA) Income tax rate of about 44% is going to try to evade the 45% Federal death tax rate. So let’s see, you get to keep 0.57*0.56*0.55 = a whopping 18% from where your descendants will pay other various taxes like Real Estate Taxes, Sales Taxes etc. Not sure if all the figures are right but you get the point. Now what evil greedy person would refuse to give 82%+ of his vitality to communal public use? Get your pitchforks out folks and lets hire some more IRS agents… burn those evil rich at the stake.

But heck, those stupid enough to keep working to innovate under these circumstances, those stupid enough to attempt to keep the US growth rate from sliding too far behind the worldwide average of 4.5%… perhaps those stupid enough to be wasting their vitality that way, do deserve this pitchfork treatment, after all…

The smart Atlas does not shrug. Heck! He didn’t even pick up the globe in the first place. He never even showed up. He’s off enjoying the sun on some Grecian beach, using his muscle to seduce your wife…

Keep working though folks! You’re the only HOPE for CHANGE. The change to: exceptional standard of living through French incentives to produce.

[…] previous post of mine at International Liberty addressed the issue of whether Republicans were righ…. The following case study of IRS thuggery should convince everyone that the answer is a resounding […]

[…] Originally Posted by Jason Marcel It's explained anywhere and everywhere by economists, if you've ever bothered to read anything. There is a real tax gap in America where hundreds of billions goes uncollected every year by people who either don't file, or people who do file but who under-report their numbers, like Clarence Thomas for instance. In 2007 the number was at $290 billion annually. The President had proposed to hire thousands more at the IRS in order to go after that money, which is a smart thing to do. The administration basically wants to spend an extra few hundred million a year on that in order to save a few hundred billion. Even if the country saved $100 billion a year by doing it, that would be a huge success. There is nothing faulty in my logic, since I don't waste my time listening to Rush or watching only FOX to the exclusion of everything else and then just agree with every bullshit thing they pull out of their asses. Why don't we just change the tax laws so that tax loop holes are closed, Lower the tax rate for businesses to make them more competitive so they don't have to stash their money overseas, by a loop hole by the way, like GE did. I really don't understand your hostility to Fox News; now I am not talking about the opinion programs but the "news" programs. I admit that they have a center to right of center bias, but the other "news" programs have a center to left of center bias. At least when Fox has a guest on they always have a person with the opposite view point also. Of course you on the left can't stand to hear the truth. Oh here are a couple of links for your Tax Collectors. IRS looking to hire thousands of tax agents to enforce health care laws | The Daily Caller – Breaking News, Opinion, Research, and Entertainment Republicans Are Right to Cut the IRS Budget International Liberty […]